FAR 2

Question 1

Accrual Accounting

Answer 1

Income statement impact, no current cash impact

Question 2

Deferral

Answer 2

No current I/S impact but B/S (cash)

Usually results in recognition of liability or a prepaid expense

Question 3

Accrued Assets (or accrued revenues)

Answer 3

Represents revenue recognized or earned through passage of time (or other criteria) but not yet paid to the entity.

Dr. A/R
Cr. Accrued Rev

Question 4

Accrued Liabilities (or accrued expenses)

Answer 4

Represent expenses recognized or incurred through passage of time ( or other criteria) but not yet paid by entity (e.g. accrued interest payable, accrued wages)

Dr. Accrued Exp
Cr. Accrued Liability (A/P)

Question 5

Prepaid Expenses (Current Assets)

Answer 5

Affects B/S Only

Dr. Prepaid Expense
Cr. Cash

Question 6

Deferred Credits (unearned revenue or deferred revenue)

Answer 6

Affects B/S Only - Liability Section

Dr. Cash
Cr. Unearned/deferred revenue

Question 7

Capitalizable Costs Associated with Intangibles

Answer 7

1. Legal fees and other costs related to a successful defense of the asset
2. Registration or consulting fees
3. Design costs (e.g. of trademark)
4. Other direct costs to secure the asset

Question 8

Reporting Impairment loss on Intangible Assets Other than Goodwill

Answer 8

Reported as component of income from continuing operations before income taxes, unless impairment loss is related to discontinued operations.

Question 9

Amortization Period of Patent

Answer 9

Shorter of:

1. Useful Life
2. Legal life remaining after acquisition

Question 10

Determination of Impairment Loss for Intangible Asset

Answer 10

Non-reversible

1. Carrying amount > sum of undiscounted cash flows
2. Loss = Carrying amount - fair value
   * Adjusted carrying amount = new basis
   * IFRS —> Reversible

Question 11

Calculating Goodwill Impairment Loss

Answer 11

1. Determine potential impairment (FV < NBV)
2. Impairment Loss = Goodwill Implied FV - Goodwill BV
   * Goodwill Implied = Difference between FV that can be assigned to assets & liabilities and what is left over.

Question 12

Current Asset under % of Completion Method

Answer 12

Costs and estimated earnings of uncompleted contracts in excess of progress billings

Question 13

Current Liability under % of Completion Method

Answer 13

Progress billings in excess of cost and estimated earnings on uncompleted contracts

Question 14

Installment Sale Formula

Answer 14

1. Gross profit

Sale - COGS

2. Gross Profit %

Gross Profit/ Sales Price

3. Earned Gross Profit

Cash collections x Gross Profit %

4. Deferred Gross Profit (contra asset)

Installment Receivable x Gross Profit %

Question 15

Exchanges Lacking Commercial Substance

Answer 15

No change in cash flows or FV cannot be determined

Question 16

Exchanges Lacking Commercial Substance: Gains

Answer 16

Measure of exchange CARRYING AMOUNT if FV not known

1. No Boot Received = No Gain
2. Boot is Paid = No Gain
3. Boot is Received= Recognize Proportional Gain (<25%)

Total boot received/total consideration received, that proportion of total gain realized is recognized

4. Boot is 25% or more of total consideration = gains/losses recognized in entirety

Question 17

Calculating Gain in Nonmonetary Transaction with Commercial Substance

Answer 17

Gains/Losses recognized based on difference between FV and the BV of the asset given up.

CASH NOT INCLUDED IN CALCULATION

Question 18

Nonmonetary Exchange w/ Commercial Substance:

Calc of New Basis

Answer 18

FV of Asset Given Up
+ Cash Paid (if applicable)
= New Basis

Question 19

What is included as foreign exchange gains in income statement

Answer 19

Remeasurements.

“Translation adjustments” are no included in determining net income for the period but are disclosed and accumulated as a component of OCI in consolidated equity until disposed of.

Question 20

How to compute deferred gross profit under installment method

Answer 20

Take outstanding A/R x gross profit %

Question 21

Goodwill Impairment

Answer 21

2 steps:

1. FV < carrying amount then proceed to step 2
2. compare implied FV with carrying amount

If implied FV < carrying amount = loss

Question 22

Converting from cash basis to accrual basis

Answer 22

Current Assets - Direct
Current Liabilities - Inverse

+ increase in current assets
(-) decrease in current assets

+ decrease in current liabilities
(-) increase in current liabilities